Shares of Nu Holdings (NU 3.20%) stock dropped 17% in December, according to data from S&P Global Market Intelligence. Investors have been spooked by high inflation and volatility in its headquarters of Brazil, and it announced a new investment that didn’t sit well with the market.
What’s new at Nu
Nu has been demonstrating incredible performance since it went public three years ago. It’s reliable for high revenue increases and soaring profits, and it has a robust credit business that continues to grow.
Revenue increased 56% year over year in the third quarter, and net income increased from $303 million to $553 million. It added 5.2 million customers in the quarter to reach 109.7 million, 98.8 million of whom are in Brazil. And while it’s still adding a high number of new members in its home country, to the tune of more than 1 million every month, it’s adding new members at a faster rate in its other markets of Mexico and Colombia.
However, inflation remains rampant in Brazil, and the falling value of the Brazilian real is worrying investors. On top that, management recently announced that it would invest $150 million in Tyme Group, a hybrid digital bank with a physical presence that operates in South Africa and the Philippines. Management sees important synergies between the two companies, and it wants to use its model to develop Tyme and replicate its success. It also sees this as an important way to drive new business and create a global, connected, digital banking giant. The market clearly didn’t share management’s enthusiasm, perhaps seeing this as a strange move while it deals with problems at home.
Buffett’s betting on big opportunities
Warren Buffett owns Nu stock as part of Berkshire Hathaway‘s equity portfolio, and although he sold off a portion last year, he still owns 1.8% of the company.
Nu still has massive long-term opportunities in a number of ways. It’s still adding members at a healthy pace in Brazil, and it’s also increasing engagement, hooking in customers with low-fee products and getting them to sign up for more services. That’s leading to increases in average revenue per active user. It has also started targeting the affluent customer, a more lucrative market.
Outside Brazil, it’s really just getting started, with 8.9 million members in Mexico and 2 million in Colombia. That doesn’t even take into account further expansion at a later date.
This may not be the best stock for risk-avoidant investors, but if you have a long-term horizon and can handle short-term volatility, Nu looks like a bargain right now.
Jennifer Saibil has positions in Nu Holdings. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
